April 24, 2020
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Raymond James Financial is suing four insurance companies for $60 million of fidelity bond coverage related to the Jay Peak ski resort fraud that has cost it more than $150 million.
In a complaint filed Thursday in federal district court in Miami, Raymond James said the insurers failed to indemnify it for fraud perpetrated in part by Joel Burstein, its former south Florida complex manager who colluded to steal more than $200 million from foreign investors.
Burstein was the broker on accounts of partnerships raided by Ariel Quiros, his former father-in-law, to fund the planned purchase of the Vermont resort. Quiros raised hundreds of millions of dollars from 836 investors who sought an expedited path to citizenship through the government’s EB-5 immigration program aimed at encouraging economic development projects.
Burstein helped engineer “an intricate web of transactions” and new accounts over six years, using money transferred to Raymond James from a Vermont bank, according to the lawsuit. He hid unauthorized margin debt and bought Treasury bills to create the illusion that accounts were funded and to evade Raymond James’ compliance protocols, the lawsuit said.
Calculating that it was likely to lose hundreds of millions of dollars in investor lawsuits over its failure to supervise, Raymond James reached a $150 million settlement in 2017 with class-action lawyers and a receiver appointed by the Securities and Exchange Commission. The firm in 2016 agreed to pay $17 million to the Financial Industry Regulatory Authority for “widespread” and “systemic” failures in its anti-money laundering programs.
Quiros, who has been indicted for money laundering and other criminal charges, agreed to pay the SEC a $1 million penalty and reimburse Jay Peak investors more than $81 million.
Burstein, who received more than $225,000 for his “services” by Quiros, in 2018 accepted a 10-year ban from working in the securities industry and agreed to pay the SEC an $80,000 fine.
Raymond James filed insurance claims in February 2018 for $60 million under primary and excess fidelity bond policies covering losses “resulting directly from dishonest or fraudulent acts committed by an employee,” according to the lawsuit.
The bonds were purchased before Raymond James became aware of the fraud in May 2016, the lawsuit said, but asserts that it occurred when the coverage was in effect.
The insurers—Federal Insurance Co., Travelers Casualty and Surety, Great American Insurance Co. and Beazley Insurance Co.—have not made any payments, according to the lawsuit, which accuses each of them with breaches of contract.
Federal, which issued the primary bond, said in a letter to Raymond James this week that the firm may have discovered the fraud earlier, when other policies were in effect, according to the lawsuit.
The brokerage firm said that if that were so, it is still entitled to coverage under earlier “financial institution” bonds it purchased from the four companies, according to the lawsuit.
In the years leading to its legal settlements, Raymond James’s expenses soared as it built a $50 million legal reserve. It completed its $150 million settlement obligations in September, 2017, according to the lawsuit.